Although gaining ground, limited engagement from suppliers and data
challenges are the main barriers to more widespread adoption of
value-based contracts in the supply chain

November 15, 2018 12:19 PM Eastern Standard Time

CHARLOTTE, N.C.--(BUSINESS WIRE)--Although 73 percent of healthcare providers rank value-based contracting
with suppliers as a priority for improving return on investments,
opportunities lag in the healthcare supply chain, according to a new Premier
Inc. survey.

Premier®, a leading healthcare improvement company, surveyed
health system C-suite leaders, operations managers and heads of
materials management to determine the prevalence of value-based
contracts for products and services across the industry, as well as
potential barriers to implementation. Broadly, value-based
contracts are those with terms and conditions that hold suppliers
accountable for delivering on cost, service or product attribute
guarantees.

According to the survey, 38 percent of respondents participate in
added-value programs, requiring suppliers to meet or beat historical
pricing targets or guarantee specific service levels. However, only 16
percent of respondents participate in true, value-based, two-sided risk
contracts with suppliers, where the vendor agrees to pay providers back
for costs incurred if their product fails to meet pre-determined cost
and quality outcomes.

“In today’s healthcare environment, health systems are increasingly
being pushed to assume risk for the total cost and quality outcomes of
all delivered care,” said Myla Maloney, Vice President of Strategic
Accounts for Premier
Applied Sciences. “In an environment where value is the new economy
and measures are its currency, we are seeing an uptick in the number of
providers interested in securing outcome guarantees from their business
partners. The challenge is that value-based contracts between providers
and suppliers are a relatively new phenomenon, and there are few best
practice examples for how they should be structured.”

A majority of providers indicated a lack of understanding of
value-based, two-sided risk contracts in the supply chain (55 percent of
respondents) as the main reason they have not implemented one.

Of the value-based contracts that have been deployed, respondents
indicated that the most common are for surgical services, with 13
percent of respondents reporting contracts in this category, followed by
cardiovascular (12 percent) and purchased services (11 percent)
categories. However, respondents faced challenges to implementation,
mainly around access to and agreement on the data sources that would be
used to evaluate performance (22 percent), as well as internal
communications about the structure of the contracts and how they should
be implemented (14 percent).

Additionally, although 81 percent of respondents said they were
interested in securing more of these types of contracts, most indicated
they were unable to do so due to a lack of supplier engagement, cited by
67 percent of all respondents.

Premier actively works with its members to develop and deploy
value-based contracts across a range of suppliers and product lines.
Leveraging the PremierConnect®
performance improvement platform with clinical outcomes data on 45
percent of all U.S. inpatient discharges, Premier has the ability to
mine data and develop relevant outcomes metrics that can be tracked and
validated by scientific best practices. Moreover, as a leading contracting
entity in healthcare, Premier can secure supplier interest and
deploy value-based contracts at scale by making them available across
its membership base.

Premier has negotiated a range of value-based contracts with suppliers,
including:

Evidence-based care discounts: More common among pharmaceutical
companies, these contracts provide a discount off the purchase price
in exchange for the reliable performance of an evidence-based clinical
intervention. For instance, a perioperative nutritional supplement
maker under contract with Premier gives a price discount if health
systems can document that they are discussing perioperative nutrition
as part of their standard care model.

Product or service guarantee: These contracts reimburse health systems
for the purchase price of a product in the event of a quality or
performance failure. One interventional device company under contract
with Premier guarantees that the use of its product will reduce
pressure ulcer rates by a specific percentage. If that commitment is
not met, the providers are eligible for a rebate.

Risk share by product: These contracts reimburse providers for
another, added cost in the system as a result of a poor outcome, as
opposed to the actual cost of the product. For instance, one
cardiovascular device company under contract with Premier reimburses
health systems for the cost of treating a specific type of infection
if a patient contracts it within six months of receiving their
intervention.

Survey Methodology

Premier’s survey on value-based contracting trends was conducted online,
with the results based off responses from 203 healthcare leaders,
including the C-suite (CEO, COO, CMO, CFO, CIO or CTIO), as well as
heads of materials management and operations from October 2 – October
22, 2018. Survey respondents included both members and non-members of
Premier.

About Premier Inc.

Premier Inc. (NASDAQ: PINC) is a leading healthcare improvement company,
uniting an alliance of approximately 4,000 U.S. hospitals and health
systems and approximately 165,000 other providers and organizations to
transform healthcare. With integrated data and analytics,
collaboratives, supply chain solutions, and consulting and other
services, Premier enables better care and outcomes at a lower cost.
Premier plays a critical role in the rapidly evolving healthcare
industry, collaborating with members to co-develop long-term innovations
that reinvent and improve the way care is delivered to patients
nationwide. Headquartered in Charlotte, N.C., Premier is passionate
about transforming American healthcare. Please visit Premier’s news and
investor sites on www.premierinc.com;
as well as Twitter,
Facebook,
LinkedIn,
YouTube,
Instagram,
and Premier’s blog for
more information about the company.